Banks come through financial stress testing

Photo: RNZ.

The main retail trading banks received a pass mark after coming through tests to assess how they would cope with a major economic downturn.

The tests, carried out by the Reserve Bank last year, posed scenarios to the country's four largest banks, ASB, ANZ, Westpac and Bank of New Zealand, including what would happen to the banking system if a downturn in the Chinese economy caused a fall in New Zealand exports, rising unemployment, falling house prices and three-years of low payouts to dairy farmers.

The central bank found the major banks were resilient enough to be able to absorb significant losses while remaining solvent under the various scenarios tested.

Reserve Bank deputy governor Geoff Bascand said that by exploring severe but plausible hypothetical case studies, stress testing helped it better understand risks to the financial system and assess how to mitigate them.

"Since the Global Financial Crisis, stress tests have become a widely used tool by banking supervisors in most countries."

The results suggested banks as a group would be able to carry significant losses without breaching their minimum capital requirements.

Mr Bascand said he expected banks to be well capitalised, so they could continue to provide credit to the economy even under severe stress.

The Reserve Bank is currently reviewing how much banks have to hold in reserves and capital.

1 Comment

Shock horror

Posted on 12-07-2018 11:41 | By Slim Shady

It would be amazing if they banks felt any stress given the way they rip people off. If there was a downturn they would just crank up the unnecessary insurance policies and charges. Safe as houses. Unless it’s a Bella Vista one.